Cars are Making a Comeback, so Let’s Invest in... Tech??

In the market for a new car? Plenty of Americans are. After a few years of pandemic-induced sluggishness, the auto industry rebounded sharply in 2023. More than 15 million vehicles were sold in the U.S., a 12% jump from 2022 and the industry’s best year since 2019. Gas, electric, or hybrid — it didn’t matter. […] You're receiving this email as part of your subscription to Michael Robinson’s Trend Trader Daily [Unsubscribe](. [Trend Trader Daily] Cars are Making a Comeback, so Let’s Invest in... Tech?? January 05, 2024 In the market for a new car? Plenty of Americans are. After a few years of pandemic-induced sluggishness, the auto industry rebounded sharply in 2023. More than 15 million vehicles were sold in the U.S., a 12% jump from 2022 and the industry’s best year since 2019. Gas, electric, or hybrid — it didn’t matter. Across the board, consumers left dealership lots with brand new wheels. And experts believe even more cars and trucks will be sold this year. So, how can we play this rebound for profits? Invest in a car manufacturer? And if so, which one? I’ve got a better idea. Let’s focus on a company that makes components essential to any car, no matter which brand or style it is. We’ve Come a Long Way Twenty years ago, the smartest feature in most cars was probably their wireless key fobs. Meant to replace traditional keys, these fobs could lock and unlock doors with the push of a button. Others could even turn on the car’s engine. It may sound like basic stuff. But at the time, it was considered “high-tech.” These days, of course, cars come packed with technology. And one component is largely responsible for ensuring that all of this technology runs smoothly... The Chips that Power our Cars I’m of course talking about semiconductors. In cars, these tiny chips control everything from onboard electronics to Wi-Fi connectivity to monitoring a car’s health. According to Yole Group, a company providing market research for the automotive industry, the automotive-chip sector was valued at $34 billion in 2020. And by 2026, it’ll be worth nearly $79 billion. That’s growth that’ll be led by drivers increasingly getting behind the wheels of new vehicles. And it’s growth that we as investors don’t want to miss out on... A Semiconductor Leader That’s why I’m focusing on one of the leading companies when it comes to semiconductors for communications: Qualcomm (Nasdaq: QCOM). This San Diego-based company played a crucial role in developing early cell phones in the 1980s and 90s. And it’s remained at the forefront of developing the technology and chips for each wireless-technology breakthrough. Qualcomm’s patents were integral to the creation of both 4G and today’s 5G high-speed wireless standards. And the company’s presence in smartphone chipsets, wireless chips, and similar sectors make it one of the world’s largest semiconductor firms. Notably, Qualcomm is a “fabless” semiconductor company. That means it designs and sells chips but outsources manufacturing duties. Being fabless tends to lead to a better focus on designing specialized chips, and often results in higher profit margins. Qualcomm has a healthy profit margin of 20%, according to Yahoo! Finance. For comparison, competitor Intel (INTL), which makes its own chips, has a profit margin of negative 3%. The Next Breakout Qualcomm is always looking for the next big breakout. And recently, it’s targeted the auto sector as a way to ramp up growth. This is a huge opportunity. According to Qualcomm, orders for auto chips stood at around $15 billion in 2021. But today, orders are double that figure. Much of that increase stems from the company’s adoption of its Snapdragon chipset lineup for use in vehicles. It’s making savvy use of the lineup’s emphasis on speed, connectivity, and adaptability... And it’s benefitting from the huge number of companies that already know how to work with the chipset to bring cars into today’s cloud-connected era. Electric vehicles (EVs), in particular, remain a breakout field. Qualcomm’s Snapdragon chips are optimized for EVs that boast of bevy of onboard electronics... And a major feature that Snapdragon-equipped EVs will have is the ability to be updated wirelessly, much like smartphones are right now. That’s much more convenient than most of today’s cars, which require a trip to the dealership for any software updates. Notable Traction Qualcomm’s chipset has been so successful that many Chinese EV manufacturers advertise that their latest vehicles run on the company’s Snapdragon chips. Li Auto’s L9 EV, for example, uses two Snapdragon chips to power its “smart” cockpit. And manufacturers like Xpeng and Nio also rely on Snapdragon chips to power their driver-facing interfaces and driver-assistance features. Closer to home, Qualcomm has deals with Volvo, Hondo, and Renault to supply them with chips. As you can see, Qualcomm is in the middle of the rapidly-growing vehicle-chip market. And it’s invested in digitizing its operations to foresee and respond to any supply-related issues that may arise. Fundamentally, Qualcomm is in good shape. Over the past three years, the company’s sales growth has averaged 17%. And earnings per-share growth recently reached 28%. At that rate, earnings could double in as little as two-and-a-half years. Bottom line: The auto industry is poised to keep rebounding in 2024. And investing in a tech leader like Qualcomm is the optimal way to potentially profit from its comeback. Cheers and Good Investing, [Michael Robinson] Michael Robinson Chief Investment Officer Trend Trader Daily   Copyright © Trend Trader Daily, All rights reserved. You signed up on []( Our mailing address is: Trend Trader Daily 1125 N. 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